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Some reflections on inflation targeting, monetary–fiscal policy interactions, and unconventional monetary policies

Author

Listed:
  • Jean-Luc Gaffard

    (OFCE–Sciences Po and SKEMA Business School, Sophia-Antipolis, France)

  • Mauro Napoletano

    (OFCE–Sciences Po and SKEMA Business School, Sophia-Antipolis, France and Scuola Superiore ‘Sant’Anna,’ Pisa, Italy)

  • Stefano Battiston

    (University of Zürich, Switzerland)

Abstract
We revisit the theoretical underpinnings of the monetary policy consensus before the Great Recession. We highlight how they resulted from New Keynesian dynamic stochastic general equilibrium (DSGE) models that (i) neglected the actual process of coordination in markets, (ii) saw price rigidity as an obstacle to the correct functioning of markets, and (iii) overlooked the effects of finance on the determination of credit supply. Furthermore, we outline some elements of an alternative framework conceiving the output-inflation dynamics as the result of coordination efforts in markets that are constantly in disequilibrium. We discuss how such a disequilibrium perspective leads to opposite conclusions with respect to DSGE models about the role of price rigidity and of fiscal and monetary policy interactions, and about the process of endogenous money formation and credit supply. Finally, in such a perspective, quantitative easing policies may play a key role also in normal times as key determinants of the distribution of financial risk.

Suggested Citation

  • Jean-Luc Gaffard & Mauro Napoletano & Stefano Battiston, 2018. "Some reflections on inflation targeting, monetary–fiscal policy interactions, and unconventional monetary policies," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 15(2), pages 132-138, September.
    • Handle: RePEc:elg:ejeepi:v:15:y:2018:i:2:p132-138
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    Citations

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    Cited by:

    1. Jean-Luc Gaffard, 2018. "Monetary theory and policy : the debate revisited," Working Papers hal-03475425, HAL.
    2. Sakib, S M Nazmuz, 2021. "Money Demand and Inflation: The relationship between money demand, inflation, and the risk premium," SocArXiv xfypj, Center for Open Science.
    3. Luca Fontanelli, 2023. "Theories of market selection: a survey," LEM Papers Series 2023/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

    More about this item

    Keywords

    output-inflation dynamics; New Keynesian models; disequilibrium analysis; monetary-fiscal policy interactions; quantitative easing policies;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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